Page 22 - Energize August 2021

NEWS

Public hearings for Karpowership generation licence

applications commence amidst growing opposition

On Thursday 19 August 2021, the National Electricity Energy Regulator of South Africa (Nersa)
commenced public hearings for generation licence applications under the so-called emergency Risk
Mitigation Independent Power Producer Procurement (RMIPPP) programme conducted by the IPP
Office of the Department of Mineral Resources and Energy (DMRE).

by Chris Yelland, EE Business Intelligence

he RMIPPP programme comprises
eleven projects totaling 1996 MW.
TOf this, some 1220 MW, or 60%, is
made up of three floating power plants
(or “powerships”) and associated floating
storage and regasification units (FSRUs) from
Turkish company Karpowership. The balance
comprises eight projects, ranging from
75 MW to 200 MW, incorporating various
combinations of wind, solar photovoltaic
(PV), battery energy storage and diesel or
gas engines.
The public hearings commence
amidst growing opposition to the three
Karpowership projects, including a
substantial submission on Friday 13 August clear from OUTA’s submission to Nersa that the three Karpowership projects, which would see
2021 by the Organisation Undoing Tax Abuse the powerships and their associated FSRUs anchored in sensitive ecological areas of Richards Bay,
(OUTA), in terms of the Regulator’s call Coega and Saldanha Bay for 20 years, are themselves far from ready to achieve financial closure.
for comment and response to the licence Nersa argues convincingly that there is, in fact, every likelihood that the date for financial
applications by the public and other affected closure of the Karpowership projects will be extended further in due course, well beyond the
stakeholders. revised deadline date. Indeed, says OUTA, it is quite likely that financial closure may never be
The public hearings come about three achieved.
weeks after the IPP Office extended the
“non-negotiable” deadline of 31 July 2021 for Other reasons given by OUTA as to why entertaining the Karpowership licence applications and/
financial closure of these projects stated by or granting of the generation licences by Nersa in these circumstances would be premature and
Minister Mantashe on 21 March 2021 when irrational are:
announcing the first tranche of preferred
bidders for the RMIPPP programme. • Lack of transparency in respect of the business case and price variations: The tariff rates
The DMRE says that that it extended bid by Karpowership for electricity delivered into the Eskom grid were not the lowest, nor
the REIPPP programme’s commercial were they significantly different from those of several of the other bidders in the RMIPPP
closing date to 30 September 2021 programme at the date of bid. However, there are very significant differences in the cost price
to allow for finalisation of regulatory variation applicable to the three Karpowership projects as compared to those any of the other
processes, including Eskom board approval projects of the RMIPPP programme, over the 20-year contract period. For most of the non-
to conclude power purchase agreements Karpowership projects, imported fuel costs (LNG, diesel, etc.) form a low percentage of the
(PPAs) with the successful bidders, and tariff rate. Their tariff rates are therefore largely indexed only to the South African consumer
related approvals in terms of the Public price index (CPI) over the 20-year contract and are therefore essentially fixed in real terms
Finance Management Act (PFMA). over this period.
The DMRE further states that the
extension for financial closure was not The Karpowership projects, on the other hand, use fully imported LNG fuel, which makes up
based on the state of readiness of any of an estimated 60% of their tariff rate. Similarly, the powerships themselves are leased from the
the preferred bidder projects, but rather on Turkish Karpowership holding company, with the associated lease costs thus being another
the lack of readiness by Government, and fully imported cost component, making up an estimated further 25% of the tariff rate. An
by Eskom as the buyer of the electricity, to estimated 60% of the tariff rate is thus indexed to US dollar market price of LNG, the US dollar
conclude contractual agreements with the to South African rand exchange rate and the carbon price, with massive upside potential of
preferred bidder projects. the tariff rate over the next 20 years. A further estimated 25% of the tariff rate is likely to be
However, it has become increasingly indexed to one or other foreign currency, with little or no transparency as to the details.

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